Powers v. Comm'r of Internal Revenue
| Decision Date | 25 May 1993 |
| Docket Number | No. 38805–86.,38805–86. |
| Citation | 100 T.C. No. 30,100 T.C. 457 |
| Parties | Melvin L. POWERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Robert I. White and Lawrence W. Sherlock, Houston, TX, for petitioner.
William G. Bissell and John F. Eiman, Houston, TX, for respondent.
This case is before the Court on petitioner's motion for award of reasonable litigation costs pursuant to section 7430 and Rule 231.
Respondent determined that petitioner was liable for: (1) Deficiencies of $496,054 for 1978 and $1,288,316 for 1979; (2) additions to tax for negligence under section 6653(a) of $24,803 for 1978 and $64,416 for 1979; and (3) increased interest for tax motivated transactions under section 6621(d). When the case was settled, the total amount in dispute was $7,145,266.71. In that settlement, respondent conceded that no deficiency was due.
We must decide the following issues:
(1) Whether the fact that respondent's position is presumed correct provides substantial justification (i.e., a basis in both fact and law) for respondent's position where respondent had no information and made no attempt to obtain information about the case before adopting the position. We hold that it does not.
(2) Whether petitioner meets the net worth requirements of 28 U.S.C. section 2412(d)(1)(B) (1988). We hold that he does.
(3) Whether any litigation costs should be disallowed because of unreasonable delays in the proceeding caused by petitioner. We hold that no costs should be excluded on this ground.
(4) Whether special skills were required by petitioner's counsel to warrant an award of attorney's fees higher than $75 per hour, adjusted for increases in the cost of living. We hold that special skills were not required.
(5) Whether the number of hours billed by petitioner's counsel and petitioner's other litigation costs were reasonable. We hold that they were.
A hearing was held on petitioner's motion. In accordance with Rule 232, the parties have submitted affidavits and memoranda supporting their positions. We decide the motion based on the hearing record, petitioner's motion, respondent's objection, affidavits and exhibits thereto, and briefs provided by the parties.
Unless otherwise indicated, section references are to the Internal Revenue Code, and Rule references are to the Tax Court Rules of Practice and Procedure.
Petitioner resided in Houston, Texas, when he filed his petition. He has an eighth grade education and has had no legal or accounting training. In 1978 and 1979, petitioner conducted a real estate leasing business in Houston. In 1978 and 1979, he built, put in service, owned, and operated five office building complexes in Houston, and leased office space therein to tenants.
Petitioner filed income tax returns for 1978 and 1979 on October 16, 1979, and October 20, 1980,1 respectively.
Petitioner's C.P.A., Kenneth Warren (Warren), prepared petitioner's 1978 and 1979 returns. Warren was an employee of petitioner from 1980 to November 1986, when petitioner's leasing business went into chapter 7 bankruptcy. Warren, with the assistance of others, kept the books for petitioner's business.
In 1982 and 1983, at respondent's request, petitioner executed Forms 872–A, Special Consent to Extend the Time to Assess Tax, for 1978 and 1979. Respondent did not attempt to examine petitioner's books and records for 1978 and 1979 during the 3–year period for assessment of tax provided by section 6501(a).
Before seeking petitioner's consent, respondent had decided, if petitioner did not consent, not to issue a notice of deficiency, i.e., to let the statute of limitations bar assessment for petitioner's 1978 and 1979 years. Respondent also had decided not to contact petitioner or examine his books and records for 1978 and 1979. Memoranda stating respondent's decisions to let the statute of limitations bar assessment and not to contact petitioner were contained in petitioner's Exhibits 28 and 29.
On his 1978 return, petitioner claimed $8,959 in deductions from Mohave Minerals and reported income of $1,358 from Sugar Creek Coal Mine, Ltd. In 1982, respondent examined and inserted examination reports for both of these entities in petitioner's file.
In December 1983, in part because of the downturn in the Houston economy, petitioner filed a petition in bankruptcy under chapter 11. He filed a plan of reorganization which was approved by the bankruptcy court. On May 3, 1985, he resumed his business operations under the plan of reorganization.
Petitioner's tax counsel during most times relevant here was Robert I. White (White). On White's advice, on March 31, 1986, petitioner executed Forms 872–T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, for his 1978 and 1979 years. As a result, the time to assess tax would expire on July 2, 1986. Up to that time, respondent had not attempted to contact petitioner (except to request that he sign the Forms 872–A), nor sought to audit petitioner's 1978 and 1979 returns or examine his 1978 and 1979 books and records.
On April 14, 1986, the file for petitioner's 1978 and 1979 years was assigned to revenue agent Larry Hoole (Hoole). On April 17, Hoole discussed the case by telephone with District Counsel Attorney David Johnson (Johnson). As discussed below, at that time Johnson was counsel for respondent on cases involving petitioner's 1976 and 1977 tax years.
As a result of his review, Hoole proposed to disallow all of petitioner's deductions of $9,000 or more except for charitable contributions. Hoole submitted a Revenue Agent's Report (RAR) to his group manager, Douglas Pierre (Pierre), on April 25, 1986. Hoole proposed that respondent disallow the following Schedule C deductions:
+---------------------------------------------------------------------------+
¦Petitioner's Schedule C Expenses in Excess of $9,000 ¦
+---------------------------------------------------------------------------¦
¦ ¦
+---------------------------------------------------------------------------¦
¦ ¦1978 ¦Allowed in ¦1979 ¦Allowed in ¦
+--------------------------+--------+---------------+--------+--------------¦
¦Item ¦Return ¦Not. of Defy. ¦Return ¦Not. of Defy ¦
+--------------------------+--------+---------------+--------+--------------¦
¦Promotion ¦$254,374¦0 ¦$706,599¦0 ¦
+--------------------------+--------+---------------+--------+--------------¦
¦Depreciation ¦221,900 ¦0 ¦646,477 ¦0 ¦...To continue reading
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